FY 2016 Congressional budget: Both the House and Senate approved their Fiscal Year (FY) 2016 budgets last week—as expected, the two versions differ and each was passed with only GOP votes. Next comes reconciling the House and Senate versions into a single final Congressional budget. That will happen after the currently ongoing two-week spring recess—Congress is now out until April 13.
Budget specifics are largely meaningless—the budget is not a law; the President does not sign off on it (to approve or disapprove). However, it does set spending parameters (“topline” allocations for the annual appropriations bills), and it also reflects policy priorities for this Congress.
Among the issues of interest to NAIFA members addressed in the budget are:
- Affordable Care Act (ACA): Both budgets call for repeal of Obamacare, and both allow for filibuster-protected replacement health reform legislation
- Estate tax: Both budgets call for repeal of the estate tax
- Tax reform: Both budgets also include provisions allowing for revenue-neutral rate reduction—particularly for businesses (corporations), with the base-broadening required to offset the cost of lowering marginal tax rates; and with “middle class tax relief”
- The Senate budget specifies Congress’ desire to increase section 179 expensing limits to $1 million
There will be controversy during the process of reconciling the House and Senate versions of the budget. In particular, there is intra-GOP tension about the level of Defense spending. Still, insiders believe that ultimately the House and Senate will reach agreement and approve a unified budget for FY 2016.
Doc Fix (Medigap): The House passed a bill (H.R.2)—by a huge bipartisan majority (the vote was 392 to 37)—that settles the issue of how and how much Medicare pays its doctors. The bill replaces the old “sustainable growth rate” (SGR) formula—that had required “emergency” patches 17 times over the past 20 years—with a new outcomes-based payment formula. It also includes a two-year extension of the Childrens Health Insurance Program (CHIP) and a handful of Medicare reforms.
Among the Medicare provisions is one that disallows payment of Medicare premiums by Medicare Supplemental Insurance (Medigap), and one that increases the share of Medicare premiums payable by wealthier Medicare beneficiaries.
The Senate did not take up H.R.2 prior to recessing, but Senate leaders from both party say the Senate will act quickly on H.R.2 the week of April 13. Senate amendments will be offered, however—if any are accepted, that will set up the need to negotiate the changes with the House, and then another House vote to approve a final version as amended (if amended).
Expectations are that something very close to H.R.2 as it passed the House will be signed into law (the President has already announced his support for the bipartisan agreement) by mid-April. But there may be some more drama before it happens. There is little chance, though, that the Medigap or Medicare means-testing provisions will come out of the package.
Taxes/Estate Tax: In addition to including a call for estate tax repeal in both versions of the Congressional budget, the estate tax took center stage at the House Ways & Means Committee. The committee marked up and approved H.R.1105, a bill that would repeal the estate tax in its entirety. The bill as approved exempts from capital gains tax the first $20 million in assets, and retains the current rule that tax is due (if it is due) only when the inherited asset is sold (gain is realized). The bill retains the gift tax, with its current indexed $5.43 million lifetime exemption, but reduces the gift tax rate from 40 percent to 35 percent. The House is expected to vote on H.R.1105—which was introduced by senior Ways & Means Committee member Rep. Kevin Brady (R-TX)—the week of April 13.
Pensions/Fiduciary: Last week there was continued intense lobbying on the Department of Labor’s (DOL’s) pending re-proposal of a rule that is expected to impose fiduciary responsibility on those who advise individuals contemplating 401(k) and/or IRA rollovers. DOL Secretary Tom Perez testified at Congressional hearings on the agency’s budget, repeating the Administration’s call for “new rules of the road” on financial advice. Key leaders of the House Education & the Workforce Committee pushed back, writing a letter to Secretary Perez demanding more specific information on how the DOL is collaborating with the Securities and Exchange Commission (SEC) on the fiduciary standard and its rules.
Resolution of this issue is a ways away. DOL has told certain members of Congress that it anticipates clearance from the Office of Management and Budget (OMB) to propose its new rule by next month (April). Once that clearance is received (something we all expect, but until it happens it’s still an “if”), DOL will propose the rule which will be open for comment (and yet more lobbying). It will be at least another month before we know the specifics of what the proposed rule will contain, although the very few leaks now occurring make clear that the proposed rule will include some kind of prohibited transaction exemption (PTE) for compensation via commissions. Whether the PTE is broad or narrow, and whether it really does allow current compensation structures, is not something we yet know. And it could be literally more than a year before we know whether the rule will be finalized (as modified or as is). This is definitely a “long haul” issue.
And, complicating this issue further are the comments recently made by SEC chair Mary Jo White, who said it is her personal opinion that the SEC will also move forward with a harmonized standard of care (fiduciary duty) for investment advisors and broker-dealers and their registered representatives. So we anticipate battling this issue on at least two fronts as the two agencies work—on separate paths, under the authority of separate laws, and therefore quite possibly with separate and conflicting outcomes—on the fiduciary issue over the upcoming months.
Senate politics—Sen. Reid is retiring!: This past Friday Senate Democratic Leader Harry Reid (D-NV) dropped the bombshell that he will retire at the end of this Congress (late in 2016). He has already announced his support for heir apparent Sen. Chuck Schumer (D-NY), whose people tell us that he (Sen. Schumer) has already locked up a big majority of Senate Democrats’ support for his candidacy for Democratic Leader in 2017. 2017 is a long way off (in political terms) and things could change. But as of now it appears Sen. Schumer will be the new leader of Senate Democrats in just shy of two years. Whether the 20 months or so that remain in Sen. Reid’s tenure will change the politics of the Senate, now that Sen. Reid is “lame duck,” remains to be seen. But it is impossible to overstate the likely impact of this news on how the Senate operates over the next year and a half. And that, of course, will control how legislation moves through the upper body between now and the end of 2016.